City of Peoria v. Brink’s Home Security, Inc – 3/3/2011
Arizona Supreme Court Holds That Three Separate Transmissions Made From One State to Another are Interstate Telecommunications Services Under A.R.S. § 42-5064(E)(4).
Brink’s Home Security (“BHS”) provides home-security systems and monitoring services to customers throughout Arizona. When an alarm is triggered in an Arizona home, information from the alarm system is transmitted electronically to BHS’s monitoring station in Texas, where personnel receive the automated signal and attempt to contact the customer. When appropriate, the monitoring personnel in Texas contact emergency responders in Arizona. The cities of Peoria and Phoenix (the “Cities”) assessed transaction privilege taxes against BHS pursuant to Peoria City Code § 12-470(a)(2)(D) and Phoenix City Code § 14-470(a)(2)(D), both of which provide for taxation of gross income from providing “telecommunication services,” including “[c]harges for monitoring services relating to a security or burglar alarm system located with the City where such system transmits or receives signals or data over a communications channel.” BHS protested the assessments, arguing that the telecommunications services its provides are interstate telecommunications services and are therefore exempt from municipal taxation under A.R.S. § 42-6004(A)(2). The tax court disagreed, and granted summary judgment for the Cities. In a split decision, the court of appeals affirmed, concluding that the services BHS provides are intrastate and therefore taxable. The Arizona Supreme Court granted review.
In a unanimous decision, the Arizona Supreme Court vacated the judgment, concluding that the transmissions at issue cannot be characterized as “intrastate.” A.R.S. § 42-6004(A)(2) provides that no city, town or special taxing district may tax “[i]nterstate telecommunications services, which include that portion of telecommunications services, such as subscriber line service, allocable by federal law to interstate telecommunications service.” Although no Arizona statute defines the term “interstate telecommunication services”, the Court noted that another Arizona tax provision, A.R.S. § 42-5064(E)(4), defines “intrastate telecommunications services” as “transmitting signs, signals, writings, images, sounds, messages, data or other information of any nature by wire, radio waves, light waves or other electromagnetic means if the information transmitted originates and terminates in this state.” Although § 42-5064 deals with state transaction privilege taxes, rather than municipal, the Court determined that telecommunications services that are “intrastate” under § 42-5064(E)(4) are not “interstate” for purposes of § 42-6004(A)(2). Because the home-alarm system at issue, in this case, involves three separate transmissions – (1) the home-security system in Arizona sending a transmission to the Texas monitoring facility; (2) the personnel at the monitoring facility calling the Arizona customer to determine whether the signal is a false alarm; and (3) the personnel calling emergency responders in Arizona – each of which is made from one state to another, the Court concluded that the telecommunications are not “intrastate” under A.R.S. § 42-5064(E)(4) and therefore vacated the lower court’s judgment.
The Court next rejected the Cities’ contention that § 42-6004(A)(2) only prohibits municipal taxation of services that federal law defines as interstate telecommunications services, noting that the insertion of the comma that precedes the phrase “which include” makes the clause non-restrictive. According to the Court, the services “allocable by federal law to interstate telecommunications service” identified in § 42-6004(A)(2) are among those to which the section applies, but they do not completely define the scope of the statute. The Court nevertheless remanded the case to the court of appeals to consider whether the assessed taxes are permissible because they are imposed on the monitoring services. rather than on telecommunications services – an issue presented before the court of appeals but not discussed by the court of appeals majority.